Portsmouth City Football Club Ltd. v Sellar Properties (Portsmouth) Ltd.

Commercial contracts must be construed by reference to the meaning conveyed to a reasonable person with the background knowledge reasonably available when the contract was made. Where an amended clause replaces an earlier clause, the amended wording is construed against the background existing when the amendment was agreed. Detailed semantic analysis must yield where it flouts business common sense. The court may apportion a single price pragmatically where distinct land interests lack intrinsic value and are jointly necessary for a development.

The Club sought declarations concerning the price payable under an option agreement for land required for a new football stadium. The price was reduced by a Milton Lane Allowance calculated by reference to consideration required by the Council for a spine road to cross Milton Lane. The Council later sold the vendor the Barwood land and a strip of Milton Lane for a single un-apportioned price.

Mr Justice Lawrence Collins held that consent meant only permission from the Council as highway authority. He declared the allowance to be £1,100,000 and the purchase price £900,000. The issues on appeal concerned the construction of consent, the relevance of the cost of acquiring the Council’s landowner interest, the effect of the 2000 amendment, and whether the single purchase price could be apportioned.

1. Appeal allowed. The order of Mr Justice Lawrence Collins was set aside. The court declared that the Milton Lane Allowance was nil and that the purchase price payable under the option agreement was £2,000,000.
2. The phrase concerning the Council’s consent for the spine road to cross Milton Lane included the cost of acquiring from the Council, as landowner, whatever interest was necessary to construct and dedicate the road over the relevant strip. The development could not proceed without that interest. It would make no commercial sense to include the cost of acquiring the Barwood freehold and lease-related consents while excluding the cost of acquiring the landowner interest required for the crossing.
3. Applying the principles in Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896 and Antaios Compania Naviera SA v Salen Rederierna AB [1985] AC 191, the court construed the clause by reference to the objective background and business common sense.
4. The September 2000 amendment had to be construed against the background reasonably available when the amendment was agreed, while recognising that the new clause replaced the earlier clause. The same wording could bear the same meaning in both contexts, but that was a conclusion from construction, not a premise.
5. The vendor was entitled to ask the court to attribute part of the single consideration to the Milton Lane strip. The obligation to negotiate jointly had been spent by the time of the amendment, and the earlier wording contemplated a single sum for Milton Lane and the Barwood land. As both interests lacked intrinsic value and were necessary together, substantially equal apportionment was reasonable. It was unnecessary to determine a precise figure because the amount attributable to the crossing plainly exceeded £1,100,000.

• Court of Appeal (Civil Division): appeal allowed and the order below set aside. The Milton Lane Allowance was declared nil and the purchase price £2,000,000.
• High Court of Justice, Chancery Division: Mr Justice Lawrence Collins declared the allowance to be £1,100,000 and the purchase price £900,000. His order was made on 17 September 2003 and dated 18 September 2003.